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Chevy Volt Tiff Exposes Potential Abuse Of EV Tax Credit?

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June 1, 2011

The federal government's $7,500 tax credit—applying to the 2011 Chevrolet Volt, Nissan Leaf, and Tesla Model S—has become a hot topic over the past couple of days, as a Washington, D.C. (read: politically motivated) 'watchdog' group sounded an alert over dealerships that were allegedly 'selling' Chevy Volt models to other dealerships, then cashing in on the tax credit.

Under the scheme, the second dealership would split the tax rebate with the first one, then resell the Volt, potentially, at around sticker. In those couple of cases, dealerships allegedly didn't inform a potential customer (an investigator from the group) upfront that they would be buying a vehicle for which the credit had already been claimed.

But seriously, have you taken a look at the federal form? From what we see, both parties might just get away with it.

EV tax credit: dealerships and second owners clearly disqualified

On Form 8936, which you attach to your tax return, you verify that in addition to owning the vehicle and placing it into service primarily in the U.S. during the tax year, that "the original use of the vehicle began with you." Okay, that would disqualify any second owner.

You also verify that "you acquired the vehicle for use or to lease to others, and not for resale." That arguably disqualifies any dealership from claiming the credit (and the finance company—the lessor—pockets the amount, while the lessee instantly benefits from the credit as it's figured into the lease).

Where's the accountability?

What's lacking completely in the credit system is vehicle-by-vehicle accountability. There's no indication on the form as to which actual vehicle is covered by which credit, and there would be any way of telling if a vehicle was 'bought' and credited twice—for instance, once by a second dealership, then again by an actual private customer.

Earlier this year, the Associated Press found evidence of widespread abuse—and either erroneous claims or malicious fraud depending on the case—including prisoners and even IRS employees claiming the credit when none of them owned an EV, let alone purchased one eligible for the credit.

Just during the first half of 2010, the IRS counted nearly 13,000 wrongful claims of the tax credit for plug-in electric vehicles and other alternative vehicles, totaling $33 million. Some were claiming it for a Hummer H3, Dodge Durango, or Cadillac Escalade—perhaps as a perverse form of tax resistance?

The IRS said at that time that it was taking "aggressive steps to recapture the credits people erroneously claimed."

Instant rebates more tamper-proof?

Of course, one step the federal government could take is to make the tax credit an instant rebate, to be received at the time of purchase and wrapped into (or out of) financing—registering a particular vehicle then and there as sold and redeemed. This also makes more sense with the tax credit's programmed graduated demise after each manufacturer sells 200,000 of the vehicles.

In the meantime, one of the steps the IRS could take, quite easily, is demanding a VIN (as California does for its state rebate program), and checking the registration and bill of sale for each credit, then cross-referencing that VIN to see if it's been claimed before, or to quickly tell if it's a legit vehicle. Even running a quick Carfax or AutoCheck report to see if the claimant's name matches with the original registered owner would be better than paying out, potentially, fraudulent claims or multiple claims per vehicle.

And better accountability would provide better defenses against politically motivated groups that might want to cry foul on tax credits, electric vehicles, or on the Detroit bailout entirely.